Forget Bitcoin, African E-Money Is the Currency-Killer

All the talk of bitcoin in recent years has overshadowed the real e-finance revolution: In Africa, India and now Eastern Europe, a service called M-Pesa has replaced banking for millions of people who don't have or, in fact, even need a bank account.

Safaricom, Kenya's leading mobile operator, majority-owned by a subsidiary of France's Orange and operated by the U.K.'s Vodafone, introduced M-Pesa -- mobile money in Swahili -- in 2007. Soon the system had an agent in just about every village and every corner of Nairobi's vast Kibera slum. Locals came to the agents with their phones -- just plain old Nokias, not fancy smartphones -- signed up and received a new menu from the operator, allowing one to transfer money to another mobile number. M-Pesa could be cashed at an agent's -- by sending a text message and receiving money then and there -- and, eventually, at automated-teller machines, without the need for a debit card. Sending money to family in a remote part of the country or paying at a market stall was suddenly as easy as texting. Nobody was sending wads of Kenyan shillings on buses, hoping they would make it to relatives in Mombasa or Kitale, or carrying much cash around. M-Pesa was cheaper then a bank, and it was everywhere, with hand-painted signs for agents popping into view in the unlikeliest places.

Now, according to Safaricom, there are 78,856 M-Pesa agents in Kenya and almost 37,000 merchants that receive mobile payments -- that's not counting stall owners who simply use their own phone numbers. People receive salaries through the system: An employer can send money to the entire payroll by uploading a file. About 43 percent of Kenya's $40 billion gross domestic product flows through the system. And, speaking of Bitcoin, M-Pesa is far, far ahead of the fashionable digital currency in transaction numbers.

M-Pesa is not an electronic currency as such. In every country where Vodafone has introduced it, the system uses local fiat money, which the operator keeps in banks. Rather, it is a substitute for debit cards and mobile banking apps. In Afghanistan, Mozambique, South Africa, Tanzania and now India, where M-Pesa debuted last year in partnership with a local bank, business has been somewhat slower than in Kenya: Only about 1 million Indians are now using the service. That's good enough for Vodafone, however: It has now received an European Union financial services license and is launching the service in Romania.

The mobile operator's thinking is clear enough: It is trying to pick up customers in countries that have the largest unbanked populations. According to the World Bank, only 17 percent of Tanzanians, 35 percent of Indians and 45 percent of Romanians have bank accounts. Others live in rural areas without easy access to banks or even a particular need to use one: Their incomes and spending are small, and cash works nicely for them -- except when it needs to be sent somewhere. That's where M-Pesa comes in.

That logic, however, is not audacious enough. Only using your phone for daily financial transactions is tempting even if you do own a bank account. Many mobile banking applications are clunky, filled with security features and unnecessary steps. They will never be good for buying a few apples at a farmer's market. Nor will mobile payment technology using Near Field Communication chips be as convenient as just sending a text, if only because not everyone's phone and not every vendor is equipped with it. Wouldn't you like to be able to pay for anything simply by pressing a few buttons on your phone? I would, and I'd like to use the system in place of credit cards, too.

I would then only use a bank for savings and large transactions. Except, as in Kenya, banks would be offering savings accounts using M-Pesa. Though initially local bankers resisted the system's spread, they soon jumped on the bandwagon, sensing new business at lower transaction costs. It proved a win-win solution, helping banks grow and Vodafone make up for falling text message revenue.

You're thinking there must be a catch here somewhere. Indeed, there is one: The fees for cash withdrawal are relatively high. In Romania, you'd pay about $10 to withdraw $500, about as much as the average commission for using another bank's ATM. Transfers also cost money, though the fees are comparable to those charged by banks. To me, on these terms M-Pesa is still a better proposition than a checking account because it is more versatile, making it unnecessary to withdraw cash as often as we do now.

The fact that Kibera residents, and now Romanian farmers, can use this futuristic form of money is making me jealous. Technology developed for the "financial inclusion" of the poor could change the rich world for the better.

To contact the writer of this article: Leonid Bershidsky at lbershidsky@bloomberg.net.

To contact the editor responsible for this article: Tobin Harshaw at tharshaw@bloomberg.net.

Leonid Bershidsky is a Bloomberg View columnist. He is a Berlin-based writer, author of three novels and two nonfiction books.
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